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FORMING A COMPANY

PROPRIETARY COMPANIES 

Most companies in Australia are Proprietary companies. Proprietary companies are denoted by the words "Pty Limited" or "Pty Ltd" and most small and medium businesses in Australia conduct their business affairs through proprietary companies.  In brief, the major differences between public and proprietary companies are: 

  • proprietary companies must have at least 1 shareholder but no more than 50 non-employee shareholders (public companies must have at least 1 shareholder); 
  • proprietary companies must have at least 1 director who must ordinarily be resident in Australia (public companies must have at least 3 directors - 2 of whom must ordinarily be residents in Australia);  proprietary companies cannot engage in any activity that would require the lodgment of a prospectus (except for an offer of shares to existing shareholders or employees); and 
  • proprietary companies are not required to appoint an auditor.

REGISTRATION 

A company comes into legal existence when it is registered with the Australian Securities and Investments Commission (ASIC) and on and from the date of registration a registered company is deemed to have certain characteristics. 

In particular, companies have a separate legal existence that is distinct from that of its owners, managers, operators, employees and agents. Although companies do not have a physical existence, they have the same powers as individuals including the power to own and dispose of property, sue and be sued, and enter into contracts. 

Some of the other key elements of a company include: 

  • continuous existence until the company is either wound up or deregistered;
  • the directors and shareholders of the company; and
  • limited liability of shareholders.

The process of registration can be outlined as a process of four steps. 

STEP 1 - SELECT A NAME 

The first step in the registration process is to ensure that the proposed company's name is available and suitable for registration. A search of the ASIC's name database can ascertain whether a name is available for registration.  A company name must indicate the company's legal status. In particular, a proprietary company must include the word "Proprietary" or the abbreviation "Pty" in its name.  Some other types of names are not available. The Corporations Regulations list words and names which cannot be used in company names without Ministerial approval. These include words such as "building society", "trust", "university", "chamber of commerce" and "chartered", as well as words suggesting a misleading connection with Government, the "Royal Family" or the Sydney 2000 Olympics. The aim of such restrictions is to ensure that a company's name does not mislead as to the company's activity or purpose. The ASIC may also refuse to register names which are offensive or suggestive of illegal activity.  

Reserve a company name (optional) 

You may reserve a company name before a company is registered, if the name is available. If you wish to ensure that the name cannot be taken by another company until you are ready to register it as a company then you must complete and lodge ASIC form 410 - Application for reservation of a name, with the prescribed fee (currently $35).  If the application is approved, the name will be reserved for a period of two months. The application will only be rejected if the name is: 

  • identical to a name reserved or registered for another corporation or a name already listed on the national business names register; or 
  • of a kind declared by the Corporations Regulations to be unacceptable for registration (see above).

If you choose not to reserve a name, simply apply for the name on the ASIC form 201 - Application for registration as a company. A names availability test will be conducted by the ASIC upon lodgement of the form 201 and the ASIC will register the name as a company if the name is available and suitable.  

Using your ACN as a company name 

Alternatively, it is not necessary to nominate a name of a proposed company. If you wish, the company name can simply be its Australian Company Number (ACN) which is its unique 9 digit number allocated by the ASIC to each company upon registration.  

For example, your company name would be known as "000 111 222 Pty Limited".  In this case you do not need to complete or lodge form 410 or nominate a name on form 201, simply tick the appropriate boxes on the form 201 as required. 

STEP 2 - REPLACEABLE RULES OR A CONSTITUTION 

A company's internal management may be governed by either:  provisions contained in the Corporations Law known as "Replaceable Rules"; or a Constitution (formerly Articles of Association); or

a combination of both. 

Companies are not required to have a separate constitution (formerly Articles of Association) of its own. Companies can simply take advantage of the replaceable rules contained in the Corporations Law as a means of internal governance. 

A company will only need a constitution if it wants to displace, modify or add to replaceable rules.

However, replaceable rules do not apply to a proprietary company while the same person is both its sole director and sole shareholder. 

Constitution 

Alternatively a company may choose to adopt a constitution. 

A company's constitution has the effect of a contract between the company and each member, between the company and each director and secretary, and between a member and each other member. If a constitution is adopted on registration, it is not necessary to lodge the constitution of a proprietary company with the application for registration but the constitution must be kept with the company's records so it is available if required.   If a constitution is adopted on registration, each person specified in the application for the company's registration to become a member must agree in writing to the terms of the constitution before the application is lodged.  If you choose that a company will have a constitution, you should seek legal advice in relation to its drafting. 

A company may modify or repeal its constitution by passing a special resolution, that is, a resolution passed by at least 75% of the votes cast by shareholders entitled to vote on the resolution. 

Replaceable Rules 

A table of replaceable rules can be found in section 141 of the Corporations Law. The table indicates the subject of the rule and the relevant section of the Corporations Law that covers each rule. 

STEP 3 - OBTAIN CONSENTS FROM MEMBERS, DIRECTORS AND SECRETARIES 

Written consent is required for each person who agrees to become a director of a company (presuming they are eligible to become directors).  

A proprietary company must appoint at least one director and one secretary who lives in Australia. The same person may act as director and secretary. In addition a director must not: 

  • be under 18 years old;
  • be an insolvent under administration;
  • have been convicted of any serious offences as specified in the Corporations Law; or
  • be banned by a court or ASIC from managing a corporation. 

Written consents are also required for each person who agrees to become a member of the company.

The written consents are not lodged with the registration application. However, the applicant for the registration must have the relevant consents when the application is lodged with the ASIC and must give the consents to the company after the company becomes registered. Consents must be kept with the company's records and directors and members details must be kept and recorded with the register of members.

STEP 4 - COMPLETE AND LODGE ASIC APPLICATION FORM 

Once the relevant consents have been obtained then you must complete and lodge ASIC form 201 - Application for registration as a company together with the prescribed fee, currently $720. Do not lodge the consents with the ASIC. These must be kept with the company's records.  The completed ASIC form 201 can be lodged in person at any ASIC Business Centre. The ASIC form will require the applicant to state: 

the proposed company name (if the company does not have a proposed company name, the name, the name on registration will its Australian Company Number);

  • the class and type of company;
  • the registered office details;
  • the principal business office details;
  • director(s) details;
  • secretary(ies) details;
  • member(s) details; and
  • share details. 

The completed application form must be signed by the applicant which can be either an individual or company. 

Australian Company Number 

When a company is registered with the ASIC it obtains an Australian Company Number (or ACN). An ACN is a unique 9digit number allocated by the ASIC to each company. 

A proprietary company must also have the words "Pty Limited" as part of its name, which can be abbreviated to "Pty Ltd".  A proprietary company must legibly display its company name and its ACN on: 

  • every public document issued, signed, or published by or on behalf of the company;
  • every negotiable instruments (for example cheques and promissory notes) signed by or on behalf of the company;
  • all documents lodged with the ASIC; and
  • the common seal (if the company has a common seal). 

In some circumstances, a company can now use its Australian Business Number in place of its ACN. 

Registered office 

As stated above, each company must have a registered office in Australia where communications can be sent and where the secretary or its agent is present. On registration the address specified in the application becomes the address of the registered office. A company must usually keep its company register at the registered office. 

Minutes of meeting 

A company resolution is a formal expression of a decision made in a meeting of company directors or members. Resolutions and company meetings are recorded in the company register in the Minutes of Meeting. 

Share register 

A company share register must be kept at the registered office. A share register must be kept for each shareholder of the company. 

After registration - on-going obligations  When a company is registered with the ASIC it comes into existence and obtains a separate legal identity distinct from that of its owners, managers and employees. 

Once it is incorporated a company and its directors have their own specific on-going rights, responsibilities and obligations. 

FURTHER INFORMATION

For more information or formal advice, contact Marks and Sands Lawyers who are experienced in this area of law. They are located at Level 9, 30 The Esplanade Perth WA 6000 or call them on (08) 9488 1300.

Marks & Sands Lawyers is one of the largest independent law firms in Western Australia and has been providing legal services to the community for over 25 years. Our legal services are certified by Standards Australia Quality. We provide a broad range of legal services for government agencies, corporations, small businesses and private individuals. We offer a 24 hour, 7 day service and have branch offices in Wagin and Merredin - our country connections remain strong. Call us to discuss your situation or to arrange an appointment.

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